Taxes in Germany - the basics for employees

You want to land a job in Germany and don't know what taxes to expect? This article is an introduction into the German tax system for employees.

This post was last updated on July 29, 2020
An illustration with a magnet pulling money out of the pockets of a white collar worker

The first step into the German tax system is your personal tax number. The German name is Steueridentifikationsnummer or Persönliche Identifikationsnummer.

Every German resident, including children, needs a tax ID in order to receive salaries, pay taxes, receive unemployment (Arbeitslosengeld) or child benefits (Kindergeld). The format of the tax ID is 01 234 567 890.

You get it a couple of weeks after registering your address in Germany. You can request your Steueridentifikationsnummer online in case you need it earlier. Its good to have it before you start working as an employee but you don't necessarily need it the moment your job starts. The tax id is permanent, it never changes.

Income tax overview

Every employee has to pay income tax (Lohnsteuer) if the monthly gross salary (Gehalt) is more than 1.029.- Euro.

Please note that taxes are not the only deductions from your salary. You might find that mandatory pension, healthcare and nursing contributions are much higher deductions than taxes.

You can use this net income calculator to find out how much money actually makes it into your account from a given gross salary, the so called Nettolohn vs the Bruttolohn which is your salary before deductions.

For employees the income tax gets deducted from the salary automatically and you don't have to do anything. The income tax is based on your net income which is your salary after deducting social contributions like health insurance.

The income tax varies between 14% and 42% depending on how high your net income is.

Employees are free to hand in a tax declaration and might get a tax return in case they declare deductible costs. The deadline for the tax declaration is end of July. Handing in a tax declaration is voluntary for employees but often employees get a tax return if they hand in a tax declaration.

Income tax for married couples

Married couples can opt for a joint assessment (Zusammenveranlagung or Ehegattensplitting). This decreases your income tax a lot if one partner is earning considerably less than the other as tax rates are increasing progressively with higher incomes in Germany.

Example of a joint assessment for married couples:
Eva earns 80.000.- Euro a year. Ben earns 20.000.- Euro. Eva is heavily taxed because of her high income. They can do a joint assessment as they are married. In this case 80.000 and 20.000 are summed up. Then 100.000 is divided by 2 and the tax rate for a 50.000.- Euro income is applied. The resulting tax amount is multiplied by 2.

Income tax for parents

Parents of children younger than 18 who are working in Germany can apply for child benefits (Kindergeld) of 204.- Euro per child per month.

It is fiscally beneficial for parents with a joint income of more than 60.000.- Euro per year (30.000.- Euro for single parents) to renounce Kindergeld and to use the so called Kinderfreibetrag instead. The Kinderfreibetrag reduces the taxable amount of your income by 7.812.- Euro as of 2020.

You should let your employer know if you have children so they can inform the tax authority which calculates whether Kindergeld or Kinderfreibetrag is more beneficial for you. Please note that in either case you must apply for Kindergeld first if you haven't yet.

Church tax

Every citizen who is a member of the Catholic, Evangelical, Jewish or any of these nine religious groups must pay the church tax (Kirchensteuer). The church tax does not apply to Muslims or members of Christian-Orthodox religions. The German state asks about religious affiliation on the form for registering an address (Anmeldung).

The church tax is automaticaly deducted from the salary and is between 8% and 9% of your income. You stop paying church tax if you officially opt out of the religious group.

List of tax classes for employees

Your tax class (Steuerklasse) determines how heavily your income is taxed. You can switch between tax classes once a year, just inform your Finanzamt.

Calculate your taxes based on tax class and income using this calculator.

How do I know my tax class?

Employees receive wage statements once a month which states your Steuerklasse.

Which tax class is best for me?

Tax class Description Who benefits from this tax class
1 Non married, divorced, widow/widower.
2 Single parent if there is a child living in the household.
3 Only possible for spouses in combination with class 5. Spouses where one partner has a significantly lesser income. The partner with the higher income chooses class 3.
4 Marriage automatically classifies the two partners in this tax class. Spouses where both partners have a more or less equal income.
5 Only possible for spouses in combination with class 3. Spouses where the income divide is at least 60/40. The partner with the lower income chooses class 5 as this class is heavily taxed.
6 This class is heavily taxed. Employees with two jobs. In this case the second job is automatically taxed according to class 6 rules and you probably want to hand in a tax declaration to get some of this tax money back.

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